Split & Redeem

SMART tokens are always created in pairs and there is always 1:1 equivalency between the underlying cryptocurrency deposited as collateral and the number of SMART Tokens created. If a user deposits 1 BTC, the user will receive 1 RiskON BTC + 1 RiskOFF BTC. Similarly, they can only be redeemed in pairs. In the example used above, if the user wants to redeem his/her collateral of 1 BTC, they will have to burn 1 RiskON BTC and 1 RiskOFF BTC.

SMART tokens can be created (minted) at any time by interacting with TRP's open source, permissionless, smart contracts and the collateral can also be redeemed at any time by burning a SMART Token pair. The minting and the burning mechanisms are frictionless with no minting or redemption fee.

1. Split

This function enables users to "split" underlying cryptocurrencies into two halves represented by the RiskON & RiskOFF SMART tokens. This process allows users to manage and customize their exposure to cryptocurrency volatility. Split Algorithm: 1 Underlying =1 RiskON + 1 RiskOFF

Key Functions

• Deposit Method: This method handles the conversion of underlying tokens into SMART tokens, distributing them to the specified recipient.

  • Parameters:

    1. assets: Amount of the underlying token to be split.

    2. recipient: The receiver of the SMART tokens.

• Mint Method: This method allows users to mint SMART tokens directly by specifying the number of shares they wish to receive.

  • Parameters:

    1. shares: Amount of SMART tokens to be received.

    2. recipient: The receiver of the SMART tokens.

Process

1. Approval:

   • Users must first approve the TokenFactory contract to spend their underlying tokens.

2. Execution:

   • After approval, users can utilize the deposit or mint methods to convert their assets into SMART tokens.

3. Conversion:

   • The conversion process splits the underlying token into two SMART tokens: RiskON, a levered version of the underlying, and RiskOFF, which is more stable and protects against downside volatility.

Use Cases

• The split function is particularly useful for users who want to manage their exposure to crypto volatility. By splitting their holdings, users can choose to hold either the RiskON or RiskOFF tokens based on their risk appetite and prevailing market conditions, enabling a more "risk aware" investment strategy.

Example Scenario

A user holds 10 units of BTC but is wary about potential losses given uncertain market conditions. By using the deposit method, the user splits their tokens into 10 RiskON BTC and 10 RiskOFF BTC tokens and swaps the 10 RiskON tokens for additional RiskOFF. Now the user has downside protection without having needed to trade any derivative instruments.

Conversely, had the market environment been more bullish, the user might have chosen to hold RiskON tokens which would have given the user leveraged upside.

It is our expectation that users will split with a view to holding either the RiskON or the RiskOFF token and swapping out of the undesired token.

2. Redeem

The Redeem function enables users to convert their SMART tokens (RiskON & RiskOFF) back into the underlying cryptocurrency at any time. By burning the SMART tokens in matched pairs, the system ensures that the aggregate value of RiskON + RiskOFF is always tethered to the value of the underlying asset. This mechanism naturally creates arbitrage incentives that help maintain price stability between the SMART tokens and the underlying.

Redeem Algorithm: 1 RiskON + 1 RiskOFF = 1 Underlying

Key Functions

• Withdraw Method: This method handles the burning of SMART tokens and the conversion back into the underlying asset based on the asset's amount.

  • Parameters:

    1. assets: The amount of underlying assets to withdraw.

    2. recipient: The receiver of the underlying tokens.

    3. owner: The owner of the SMART tokens

• Redeem Method: This method handles the burning of SMART tokens and the conversion back into the underlying asset based on the input amount of shares.

  • Parameters:

    1. shares: The number of shares to redeem for underlying assets

    2. receiver: The recipient of the underlying tokens.

    3. owner: The owner of the SMART tokens

Process

1. Preparation

   • Users must hold equal amounts of RiskON and RiskOFF to redeem the underlying token. If the user holds only one side, they can obtain the matching token via swap pools before redeeming.

2. Execution

   • Users call the redeem method on the SMART Token contract, specifying the number of shares and the recipient.

3. Conversion

   • The platform’s redemption algorithm converts SMART tokens back into the underlying at a fixed rate:

   1 RiskON + 1 RiskOFF = 1 Underlying

   This ensures:

   • Predictable redemption outcomes

   • Continuous arbitrage alignment between the tokens and the underlying asset

Use Cases

• Users who no longer want exposure to RiskON or RiskOFF or who spot an arbitrage opportunity can quickly redeem their tokens for the underlying asset.

Example Scenario

The market prices of RiskON BTC & RiskOFF BTC aggregate up to $85,000 on TRP's Risk Marketplace. The current market price of BTC is $90,000.

1. The user buys 1 RiskON and 1 RiskOFF

2. User then burns 1 RiskON + 1 RiskOFF

3. The user receives 1 BTC for a profit of $5,000.